Deutsche Raises Valuation Multiple, Target Price On Trina, Yingli

By Shuli Ren

AP

Deutsche Bank thinks Trina Solar (TSL) and Yingli Green Energy (YGE) deserve a higher valuation multiple, as the global demand outlook is bright and the domestic competitive landscape is right. The broker raised its price target on Trina Solar to $23from $18, and on Yingli Green Energy to $10from $8. These two stocks last closed at $16.47 and $7.94.

Demand for solar panel is long-term and global, according to analysts Vishal Shah, Jerimiah Booream-Phelps and Susie Min:

In the US, solar projects at the residential and commercial level are currently been done at PPAs offered 20% below the prevailing retail electricity prices.

Despite system costs averaging 20-30% above European system costs (due to inefficiencies in the US market), project owners are still able to generate 11% after-tax unlevered returns.

We also expect demand from China and other emerging solar markets to remain strong over the next few years.

The broker expects the first-tier companies to run at full capacity:

We expect Chinese solar companies to remain sold out through end of this year and early next year. Given strong demand from China, Japan and other emerging countries, we expect most tier 1 Chinese suppliers to guide to near
100% utilization rates.

First-tier companies are also diversifying into the more profitable downstream business:

Some of the solar companies that have so far reached profitability (FSLR, SPWR, CSIQ) have also benefitted from attractive downstream project economics and we expect the remainder of tier 1 Chinese solar companies to also talk about getting more actively involved in downstream projects.

Industry consolidation is on the way as the state tightens financing on the smaller players to push them out:

Tighter financing environment in China along with more concentrated distribution of downstream solar projects are some of the primary drivers of consolidation in our view. We expect to get more details on both fronts – in particular, we expect a handful of companies with strong relationships with state owned enterprises to gain share in the Chinese solar market. Our current models do not assume significant share gains for tier 1 Chinese companies such as TSL, YGE and we expect significant upside to our 2014 estimates if these companies were to gain market share.

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There are 3 comments

OCTOBER 18, 2013 10:45 A.M.

ChinaSolarLover wrote:

Thanks Shuli. There is some consolidation going on at this specific moment. While CSIQ and JKS are strong within the Chinese tier 1 groups, TSL, YGE and SOL in particular are a bit weak. To me, this is a very healthy consolidation phase after the strong and virtually non-stop straight up period for the entire group in the past month or so, which had lifted the group, except SOL, at least 20%. I think those of the investors who have taken profits during the period, myself included, should take this opportunity to gradually buying back the shares we sold for profit. Once this consolidation phase finishes, perhaps in a couple weeks to a month, we should see another leg up, which could move the whole group another 20% higher, which will push TSL to $20+, YGE to $10, as DB indicated this morning. In any event, don't be shy when you see a sizable pull back, instead jump in forcefully! I did so this morning by buying back 20,000 shares of SOL from $5.15 ~ $5.35. GLTA!

OCTOBER 20, 2013 9:46 A.M.

GreatNewsSolar wrote:

Nice article. World awareness of solar and the power of the sun is just getting started. This is a industry that is beginning to compete with other power forms. I think this start of the solar energy revolution. The top 10 (in particular top 6) Chinese solar players will thrive with demand expected to rise all the way through 2020. Not to mention Margin expansion and lowered costs.....many of these companies have opportunity to reach all time highs as this solar boom will likely be lasting unlike the last one. There have been alot of comments suggesting these companies will ,if have not already, begin to expand into downstream (EPC/solar projects/commercial/residential solar), not just supplying panels. First Solar and Sunpower have been monsters in this area in past and present. The article (while briefly mentioning CSIQ) fails to realize they, of the Chinese/Canadian Solars, have a huge head start in this area for example 378MW project pipeline Canada, 222MW in USA, Japan 166MW (450 extra under review), China 36MW (with over 500MW-1GW under review). 100MW extra in Canada breaking ground with Samsung with another 200MW worth of phases over next 2 years if approved. 50% of revenue will be from EPC, project development and total solutions. Recently announced USA residential financing program to compete directly and more effectively with SPWR and others. The other Chinese solars in approximate order of project development(downstream) are Jinko, Jaso, Trina, Yge, Sol (Tsl and Yge are expected as article suggests to start announcing). So while these targets are great and I do hope to see all companies and investors be successful, the current leaders appear to be CSIQ and JKS for near future of 12-18 months.

OCTOBER 20, 2013 9:48 A.M.

SolarRevolution wrote:

Nice article. World awareness of solar and the power of the sun is just getting started. This is a industry that is beginning to compete with other power forms. I think this start of the solar energy revolution. The top 10 (in particular top 6) Chinese solar players will thrive with demand expected to rise all the way through 2020. Not to mention Margin expansion and lowered costs.....many of these companies have opportunity to reach all time highs as this solar boom will likely be lasting unlike the last one. There have been alot of comments suggesting these companies will ,if have not already, begin to expand into downstream (EPC/solar projects/commercial/residential solar), not just supplying panels. First Solar and Sunpower have been monsters in this area in past and present. The article (while briefly mentioning CSIQ) fails to realize they, of the Chinese/Canadian Solars, have a huge head start in this area for example 378MW project pipeline Canada, 222MW in USA, Japan 166MW (450 extra under review), China 36MW (with over 500MW-1GW under review). 100MW extra in Canada breaking ground with Samsung with another 200MW worth of phases over next 2 years if approved. 50% of revenue will be from EPC, project development and total solutions. Recently announced USA residential financing program to compete directly and more effectively with SPWR and others. The other Chinese solars in approximate order of project development(downstream) are Jinko, Jaso, Trina, Yge, Sol (Tsl and Yge are expected as article suggests to start announcing). So while these targets are great and I do hope to see all companies and investors be successful, the current leaders appear to be CSIQ and JKS for near future of 12-18 months.

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Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.